[83] Thomas Smale on Selling Your Online Business
This is Bootstrap Web episode number 83. This is the podcast for you, the founder who learns by doing as you bootstrap your business online. And today we have Thomas Smale with us talking about the end game, or at least for some people, end game that is buying and selling businesses. Thomas, welcome to the show.
Speaker 2:Thanks so much, Jordan.
Brian Casel:Yeah. Hey, Thomas. You know, welcome to the show here and, you know, great to have you on. So so, yeah, you know, talking all about businesses. As I mentioned in an earlier episode, you and and your company FE International helped me with my recent sale of Restaurant Engine.
Brian Casel:So it's been good to kinda get to know you and your team and and we actually met back in Vegas for MicroConf then and we'll be I'll see you again next week at MicroConf Europe.
Speaker 2:Yeah. I'm really looking forward to it. It should be fun.
Brian Casel:Yeah. So I mean, where should we begin here? You know, as as we were saying before the call, I think most of our listeners I I know that we have listeners who are in all different phases of building a business, know, there there are many who are kind of just starting out from ground zero, but I know that there there are definitely a segment of folks who are a little bit farther along, they've growing businesses, maybe they've been plugging away at these businesses for a few years now they're starting to think about well where is this going what's that next step and you know maybe selling is a possibility what do you guys think where should we start this this this conversation I guess like the the big question that that I think a lot of people have is like what do we need to be doing right now in order to to actually have a a business that's ready to be sold or or get it to a point where it can be ready to be sold? What are the kinds of things that we should be thinking about?
Speaker 2:Yeah. That's a really good question. And quite a lot of people, I think, like you rightly point out, you get people that are at stages of their businesses. As a broker and advisor, I spend a lot of time with people at all stages. They might be quite early on.
Speaker 2:They might be five years in. They might be thinking about a sale now. They might be thinking about sale in two years. So a lot of the time I spend is advising people on like the best way to get in a position to eventually sell. So the first thing people need to understand, especially with technical products and that comes up quite a lot is I get a lot of people that come to me and they say, hey, Thomas, built this really cool app.
Speaker 2:I built this really cool SaaS product, really good plugin. I spent a year building it. I spent a $100,000, but it's not making any money yet. Can I sell it? In my experience, generally, it's quite difficult to sell something if it's kind of pre revenue, especially to the kind of buyers that we deal with.
Speaker 2:I mean, there is a small market for businesses like that. So I mean, the first thing you need to focus on is revenue and underlying profitability.
Brian Casel:Even though you have an asset that you've built like a software product or a plug in or or or like a functioning SaaS app or something like that, that alone is, you know, in in the eyes of a buyer, is really just not worth anything. I mean, buyers in this type of market are not necessarily looking to buy a software asset. They're looking to buy a business. Like there there are other places where somebody can go to buy a software product or get one built.
Speaker 2:Precisely. I mean, from a buyer perspective, they don't care if you spent three days launching your app if it makes $10,000 a month versus spent three years and it's making $500 a month. So the amount of time you spent is effectively I mean, it sounds a bit harsh, but it's effectively lost. It doesn't mean you should not build a good product. But I mean, the first thing you need to realize if you ever are thinking about exiting is that revenue really is the number one driver for the majority of buyers, especially if you want to go out there with a kind of a sale possibility above 90%.
Speaker 2:There are obviously examples where pre revenue and just an asset can sell, but that's really kind of like the one in 100. You need to get lucky, right place, right time. And my business is around getting those odds to the stage where it's almost a sure thing.
Jordan Gal:And from my point of view, at the risk of jumping into the weeds off the bat, I mean, we're talking about revenue. The next logical question that comes along with revenue is multiples and different price levels. If we're going to stick with the SaaS example, I'm not even sure if we gave a SaaS example, but I'm going create a SaaS example. For a SaaS doing $10,000 a month, what should people expect as the multiple? Because we see public market multiples are in the stratosphere and then we don't know what to apply to our own situation.
Jordan Gal:So what is a reasonable multiple? Do people look at revenue? Do they look at profit? Depending on the situation, how does that revenue affect sales price in the type of market that you deal with?
Speaker 2:Yeah. That's probably one of the most common questions I get asked. So first, the valuations are based off a multiple of what's called SDE, which is seller discretionary earnings. So revenue itself, when you're starting out, obviously, if you're going to have any profit at all, you need to have revenue. So revenue is the first thing you need to be generating.
Speaker 2:But from an actual sales perspective, valuations are based off SDE, which is effectively revenue taking away any relevant costs of the business, but not including anything discretionary or owner related. So for example, if you have a product that turns over, say, 150 ks a year, and then you spend 50,000 on servers, programmers and like various software products, you're netting a 100. And then if you then pay yourself a $100,000, your net profit to your accountant, the IRS, whoever is is zero. But from a sales perspective, we just look at the amount of business is actually netting rather than what you've taken out. So in that case, we would take a 100,000.
Speaker 2:So working on the assumption you've got like the average SaaS business I look at that's doing $10,000 a month in revenue usually has around 2 and a half thousand dollars in relevant costs. So you'd be looking at something netting around 7 and a half thousand dollars a month, which is what's that $90,000 a year. The rule of thumb I would give, like this is a very kind of approximate rule of thumb based on this is working under the assumption that the business itself is quite stable, ideally growing. It's relatively hands off for the owner. So if you're spending forty hours a week versus four hours a week, then you'd expect to get less.
Speaker 2:Also, it's quite important to have a product that's actually evergreen and not really going anywhere. Quite a lot of people might build products off the back of certain trends. And then you could be in a situation where that trend starts to die down, the business starts to die down. So under those kind of caveats, we usually expect to see around three times annual. And if it's been growing in recent months, then we would look at the last three months and annualize those out.
Speaker 2:With SaaS businesses, they're relatively unique across the whole spectrum of businesses we sell that with the recurring nature of revenue, you can reasonably accurately predict twelve months time, which is why we can analyze the last three months. So somewhere in the ballpark of three times your annualized net for the last three months. And the average SaaS business is going to fall somewhere in the 2.5 to 3.5 range with like, not that many are gonna go above that and not that many are gonna be below that.
Jordan Gal:Okay. Yeah. Those are good good solid numbers to to kinda have in mind.
Speaker 2:As you go up the scale, so that would be anything below, say, 150,000 a year net. Once you get above $05,000,000 in asking price, you start to get a little bit more traction, slightly bigger buys. So that's when the multiples might start going up. But below 500,000, it's quite rare for us to see anything above three if you analyze the last three months.
Jordan Gal:So once you get above a half million in annualized revenue, then all of a sudden the multiples change. They go up from two and a half to three and half. That's when they start to creep up toward what we're, you know, what we see out in the markets of six X, 10 X. I guess that that depends on the growth, but it does go up from there.
Speaker 2:Yeah. Six or 10 is really quite optimistic. I mean, depending on your recent growth, you're talking more like four times or more likely to get three and a half times. Because at that stage, got something that's a little bit more substantial, it's got more cash flow and it's kind of proven scalability. Whereas you find a lot of we look at a lot of SaaS businesses that kind of cap out around the 10,015 a month MRR and then they struggle to grow beyond that point.
Speaker 2:I don't know. I don't have a particular reason why that is the case. But we do see quite a lot that have got to that stage and kind of hit a wall and don't get above that, which I think is why valuations start to go up above that level as there's probably some sort of proven scale there that quite a lot of SaaS apps tend to kind of hit a wall around ten, fifteen k.
Brian Casel:Yeah. It's interesting, you know, talking about like these different levels of the market when you're when you're looking to sell a business and and I guess different types of buyers too. Right? Like, as you said, like, the the SaaS businesses get to this like 10 to 15 k a month MRR point and they kind of, you know, start to plateau or I I mean, do you find that there are buyers who are or certain parts of this market who who preferred to to buy businesses that that have started to plateau and and because they look at those as an opportunity to to come in and and fix it and and really grow it? Or or is it more attractive to to see a a steadily growing business that that's, you know, proven scalability?
Brian Casel:I guess it it kinda depends on like the size or or like the segment that you're dealing in. Does that
Speaker 2:make Yeah. I mean, the the nature of running a brokerage business is we try and we need to be educated for any sort of business. So whether it's a SaaS app, whether it's like a WordPress blog or whatever. So we've always focused on, I guess, getting as many buyers as possible because you're always going to have some who are interesting growing businesses, some who want to buy businesses that are declining and some who want to buy flat businesses. Generally speaking, I mean, buyers want a business that's growing and they're usually willing to pay a premium for that.
Speaker 2:If it's quite flat, especially if hit a bit of a wall, sometimes that can be a situation where the multiple is not going to go much above three because you haven't proven out that scale. So, I mean, we have buyers. I mean, standard sales pitch, we have buyers for everything, but it kind of varies. But I say the majority of of buyers are looking for saying this improving. But I mean, it really depends.
Speaker 2:If you look at kind of the sub $100,000 asking price range, that's where you have the widest range of buyers. And it could range anywhere from kind of like investors, people looking to like speculate, people who have built themselves just looking to add to the portfolio, hobby buyers. And you do get some buyers at that level who are just looking for an app and they just want to kind of then they're not necessarily looking for a massive return. They just want thing that's gonna take over, and they can play with it. Once you get above a 100,000, you start to I mean, I wouldn't say buyers below a 100,000 are not very serious, but you start to attract the slightly more sophisticated buyers who are looking for something that can scale and they can actually get a return on their cash.
Jordan Gal:Who are the buyers?
Speaker 2:So, I mean, it really varies. Like I said, like below a 100,000, you get the wider spectrums. Get kind of first time buyers, people who've heard about online being like kind of the way to go going forward and you buying an online business being a new asset class. So you get a lot of first time buyers who might have a reasonably high net worth. So they might have, say, a million dollars total to invest, but they might start with a 50,000 or $100,000 purchase just to kind of get used to the industry.
Speaker 2:You get some people who might already own businesses and they're looking for something similar to add to their portfolio. So if I'm buying sites for our own portfolio, that's the kind of thing we look for. So I guess kind of a strategic buyer at that level or someone who has experience online. As you go slightly higher up the kind of cap scale, once you get above 100,000, you start to attract slightly more traditional investors. So you might get small funds who might have a particular focus on a certain type of business, whether it's a certain sector or a certain type of business.
Speaker 2:So for example, they might just exclusively be looking for SaaS businesses or some people might just be looking for businesses in the entertainment space and they don't care if it's a blog, a SaaS product, an app or whatever. And you can also start attracting small funds, more like when you get to a million dollars, not necessarily venture capital, but funds who might own some much bigger, much bigger products and they're looking to add to their portfolio. So you get a slightly wider range, slightly more sophisticated buyers. But below, I think below a half million, the vast majority of deal with would be either individuals or partnerships. It's only really when you get above that level and you start dealing with like larger companies who kind of need to buy something substantial enough to make it worth their time.
Jordan Gal:Right. And I think that segment of the market is the most interesting and at the same time, most mysterious. Because I can picture someone who wants to buy an online product for $100,000 and try to give it a go or do something with it. At the same time, you can also see a much larger company, a Google buying something that's growing for $100,000,000 You can make sense of that. You've seen enough.
Jordan Gal:You've read about it enough. The in between is the part that's very mysterious, but I also think that's actually the most likely thing to happen. You know, to get acquired for $5,000,000 is much more likely than getting acquired for a $100,000,000, but who the hell buys these businesses for $5,000,000 and why? You know, it's important, especially when talking to someone like yourself that sees all these different situations, it's important even from day one before you start a business, if you do have the intention to one day sell the business, to understand who these people are and what would be attractive to them. That you should make every decision based on it, but it should factor into the way you build the business.
Jordan Gal:So that segment of the market, that 1 to $10,000,000 acquisition range, what is going on there?
Speaker 2:So, I mean, I think at level you start to attract. So traditionally, like business brokers don't tend to deal with larger institutional type investors because they tend to look over that million range. But in recent years, I think as opportunities have kind of presented themselves, especially in the SaaS space, find there's a lot of activity, like you say, talking about these like six, ten times multiples, if you can get a business to say like 10,000,000 ARR or something like that. So there are a lot of kind of investors out there who are looking investors, investment funds, small groups, maybe portfolio owners in like already existing in the SaaS space who are kind of looking for saying they can scale. So a lot of buyers we deal with over that level are looking for saying that might be doing say $30.40 ks MRR, and they're looking to grow it to $304,100 ks.
Speaker 2:So looking at that level, they might be looking for saying that's got the proven scale that we spoke about earlier, which is quite important for that. You don't find too many buyers at that level who are just looking for saying that's solid and just going to take over. Slightly lower down. You do get buyers who just kind of want the return. Guess like a traditional investor just wants to buy a business.
Speaker 2:And if they buy it for, say, three times and it costs them half of the profit to hire a manager to run it, then they're getting, say, 17.5% or so return on their cash, which is quite a decent return for the majority of investors. But slightly higher up, you tend to be looking for those who are looking for a proven product sign they can scale. And that there are opportunities. They might either be looking for sign that hasn't been able to scale because the owners are one man band and they've got it as far as they can. The owner or owners haven't had enough cash to grow it.
Speaker 2:Or in like slightly more rare cases, it might be a someone in the SaaS space who's got particular experience scaling sign in a particular sector. So they're gonna pick it up and they're already gonna know what to do to scale it.
Brian Casel:You know, I'm curious about, I guess this is a question about how your business run like in being a broker, like how does your business work? Because I see like, I know who you are. I met you through our our networks, you know, going to, like, these entrepreneur meetups and things and, you know, conferences and podcasts. And so I understand how you network and gain visibility with business owners and founders of of of apps and and things like that, but how do you grow the list of buyers and how do you network on that side of of the equation? And and how do you find these these buyers who are like quietly running businesses, investing in businesses at at like the million dollar level plus, you know, they're not visible.
Brian Casel:These are not the things that are gonna be showing up on like TechCrunch, but but there is a vast market out there of these buyers. Like how do you how do you reach them and then how do you, kind of, you know, match them up with with businesses that that makes sense for them?
Speaker 2:Yeah. That's really a good question. So from a business owner perspective, one of my big a bigger challenge for us is bringing in quality businesses versus buyers. You tend to find, I mean, that's a bit cliche, but if you have good businesses, buyers will find it. So when we started out, so if you go back four or five years ago, we used to just basically advertise on marketplaces, even places like Flippa back then to kind of get the initial buyers.
Speaker 2:But as we've kind of matured as a company, we have an established marketing team and established like marketing budget. We invest quite heavily in finding buyers. So continue to go down the route of various business for sale marketplaces, which kind of is a consistent, I guess list builder for us. We tend to find a lot of people who are kind of looking on marketplaces might say on our list for usually about twelve months until someone actually comes around to buying a business, which is why if you're trying to sell a business yourself, it's actually quite difficult because it's quite rare to find someone straight away who wants to buy a business. We have find the cycle is quite a lot longer than that.
Speaker 2:We've in the last twelve months especially, I know this is something you're quite big into Brian, but we've been investing heavily into content marketing. So we've written ebooks about buying online businesses, how to buy an online business. We've written a lot of blog content. We publish about six or seven posts a month at the moment, which is kind of relevant to buyers, sellers, or kind of both. Content marketing is quite a big source for us at the moment.
Speaker 2:I guess generally like networking, like doing podcasts and things like that does bring buyers in. Tend to find it putting more relevant for sellers who tend to do a little bit more research, whereas from a buyer perspective, they don't really need to do background checks on me or my company. They're kind of less worried about that. And also just a case of it just compounds over the years, just building a list, keeping in contact. We put a lot of resource.
Speaker 2:We have a whole team who their entire job is just to talk to buyers. So when a new buyer joins our list or makes an inquiry, we'll schedule a call with them, email them. We're not just kind of trying to build a list of a 100,000 people who randomly said they wanna buy business. We wanna actually have proper relationships with people who want to buy businesses, understand what they're looking to buy. And that means from a company perspective, we can actually get businesses sold with a very high degree of likelihood and also get them sold quite quickly.
Speaker 2:And obviously in a business where we only get paid if a business sells, it's in our best interest to make sure that if we do take something on, does sell. Because when it doesn't sell, it gets quite expensive quite quickly.
Brian Casel:Yeah. You know, actually, I'm I'm kind of curious, about the process of I guess part of it would be vetting the buyers, but but also coming up with the right match of a buyer with a business that that's for sale like do you run it run into you know businesses up for sale and buyers who are on your list look interested but for whatever reason it doesn't look like the right match? Like, do you do you run into any kind of issues like that?
Speaker 2:Yeah. I mean, one one thing I found over the years is that quite often buyers think they know what they're looking for, but they actually don't. They they might, for example, come to us, say they wanna buy a SaaS business and they actually end up wanting to buy an e commerce business. Or they come to us saying they have quite a common one is somebody comes to us and say, hey, I've got half $1,000,000 to invest. I wanna buy a website.
Speaker 2:What should I do? And in that situation, we were trying to encourage them to kind of start at 50 or a 100, not kind of invest all upfront. From like a buyer matching perspective, it's saying that is like very important to us. So we've invested heavily over the last three or four years into our proprietary tech technology. So we've built a CRM that's kind of similar to Salesforce, but for selling businesses.
Speaker 2:And we keep track of all the different buyer criteria when they come in. We keep notes on them. So when we have a business that does come up, we can hopefully match it to the criteria, whether it's budget, sector, size, platform, anything along those lines. And in a rare situation where buyers have a very specific requirement for business, if something does come in, then we know it's gonna be a a good fit for them. But finding buyers that are a right match is obviously quite important.
Speaker 2:You can find especially with the majority sellers we deal with are founders. We don't deal with too many people who are reselling something bought elsewhere. So they're quite emotionally attached to the business and they wanna find the right buyer who's a good fit. So there's no like perfect way to do it. And sometimes there are problems we found just by kind of keeping regular contact with buyers, finding out exactly what they want, educating them.
Speaker 2:Educate education is a very important part of the process. If they don't know what they're doing, they don't know what's expected of them, then it causes issues. So a lot of our investment in content marketing isn't just to attract new buyers. It's to improve the quality of the buyers we already do have, kind of the quality versus quantity approach. And then finding finding buyers who's a good match.
Speaker 2:Mean, be honest buyers, the majority of buyers will inquire in a lot of different businesses and they will kind of match themselves to the business they like. There's not really too much magic on our side in that front. Other than with our CRM just kind of matching and making sure that we speak to the right people when a business does come on.
Brian Casel:Cool. So, you know, let's kind of get back to the perspective of the founder, which I'm guessing is, you know, most of our audience here. So when I started my first business, I really in my mind, I did I was not thinking like the end goal would be to sell it. And I was almost surprised at the fact that I did end up selling the business, you know, about four years later. I I did not envision that happening.
Brian Casel:So in year one, I mean in day one, there there were plenty of things that I did not set up in the most ideal way and and I didn't keep, you know, records in the in the most organized way that it especially when it comes to selling a business because obviously during the due diligence process and getting everything together, everything is gonna get, you know, combed through with a, you know, you know, just really focusing in on every little detail. So what can someone who's just starting out, just starting something up new, what are the kind of key pieces in place that even if you don't think that you're gonna sell someday, what what should you be thinking about in terms of, you know, at least getting off on the right foot?
Speaker 2:Yeah. Firstly, that's a really good point you make. I think a lot of people, like I say, they don't necessarily start out thinking they're gonna eventually sell their business. But at the same time, being making your position in a position where it could be sold does not necessarily mean you are going to sell or you are planning to sell. So even if you're not, it is important to put those things in place because you never know what could come up that might either force you to sell or you might have a change of circumstances and decide you want to sell.
Speaker 2:So doing a little bit of work upfront can save you a lot of headaches on the back end. And it can also be the difference between a business being like very sellable or not sellable at all. So So it's not always a difference between say two and a half times and three times annual. It can be the difference between three times or zero. And you could be in a situation where you might have to shut your business down rather than selling, which no one wants to do if they get to that situation.
Speaker 2:So I mean upfront, mean, the very first thing you need to think about is, I guess if you're a buyer, what would you wanna do if you take over this business? And so making sure that as a founder you are replaceable is very important. So you shouldn't necessarily completely avoid any kind of personal brand with the business. But the more you can build the business around its own brand, the more beneficial it's going to be when you come to sell. Because a buyer wants to come in, take over the business and run it as you have.
Speaker 2:So if your name is all over it, you do all of the blogging, you do all of the kind of marketing and it's all under your name rather than the business itself. And it doesn't have a like a brand, then that can be quite problematic. That's one of the things that really can hold a sale back. Other things. So from like a technical perspective, I'm not technical person myself, but making sure you have clean code, everything's documented and kind of try and build it for the future.
Speaker 2:So you find a lot of technical founders, especially if they're self taught and to build quite messy code. They don't necessarily document it that well. So it is important to think even if I don't want to sell now, is it tidy enough that someone can come in and understand this? It's also important if you can to put a team in place, Brian, this is what you're saying you did very well from day one. So you know all about this, but making sure that when someone comes into business, ideally, it's a business that can run without you.
Speaker 2:That's the most desirable business you can build. Obviously, that's not necessarily achievable for every founder out there. The vast majority of especially sub 100,000 deals we do are kind of just one employee and the employee is usually the owner. So you don't necessarily have to hire, but the more you can outsource, the more you can systemize, the better you're gonna be when it comes to the sale.
Brian Casel:You know, that was one of my top concerns going into the idea of selling the business was I I wasn't convinced that that a productized service could actually be sold or or at least, you know get what I wanted for the business, and I was pleasantly surprised that that it could. I mean, think I I think it it came together nicely with with all the systems and processes and and people that that I put in place, but I was still a little bit surprised that a business that relies so heavily on manual processes and not we do have some software in place and and a platform and things like that and that helps but it it is driven by the team, and they play a very key role in in delivering the service and delivering the product to our customers. I was wondering whether or not that that would actually be a saleable asset and I and it turns out that it is, as long as you really focus in on on getting those systems and processes in place.
Speaker 2:So Yeah. That's really the key. It's not necessarily a business with people isn't necessarily unsellable, but a business that's really founder reliant. The key with your business was it wasn't overly reliant on you and the team in place did a lot of the work. So the team itself is not the problem.
Speaker 2:It's the systems, processes, documentation, lack of key man risk that is the key versus people themselves on the problem. It's usually the processes or management behind them that can cause more problems.
Brian Casel:Yeah. Like what what can you say to founders who are just getting started there there I mean, putting their business up for sale and they're ready to begin this process, how do you kind of set expectations and is it even possible to set kind of clear expectations because is every deal like completely different from the next or do you find, you know, certain consistent patterns in in how deals actually play out, how things progress from, you know, letter of intent through due diligence into into closing? How do you prepare a a first time seller for that process?
Speaker 2:Yeah. So what I mean, every business we deal with is unique, but we've done over 300 transactions now, and we've got a team of 10. So we have a small my business partner and the team work very hard on building systems and processes that are repeatable. So while every business is different, we follow the same system and process for every business. So whether it's a like a $50,000 business or a $500,000 business or processes exactly the same.
Speaker 2:There might be some things in a slightly smaller cell that are less complicated. It's it'll take less time, but the process we follow is very consistent. So, I mean, I guess one of the advantages of working with a broker, especially they've got a lot of transaction history in a space you're in is that they should have systems and processes that are repeatable and means that there's an element of predictability to every different stage. And with the 300 deals we've done, we've probably seen whatever nuances your particular business has or problems that might come up in a deal. I mean, one of the biggest things of hiring a broker isn't necessarily that the deal is going to go perfectly smoothly throughout.
Speaker 2:It's more the fact that the brokers themselves or the company you work with should be experienced in dealing with those issues and turning a deal killer into a kind of a compromise or getting a deal over the line. But the kind of consistently following processes, I mean, with the amount of data we've got over sales, we can pretty accurately predict how long a sales going to take, what different elements of the process are going to might take longer. So some businesses might be more complex in due diligence than others. And we can usually predict that upfront. In terms of valuation, we usually pretty accurate valuation.
Speaker 2:I think our average variance from valuation to sales price is around 10% usually hovers around that level. So it's quite rare for us to be like too far out on where the actual sale ends up. And the same with structure as well. Usually, we're going to be pretty accurate with whether or not you're going get a cash deal, whether you should expect an element of financing. With the times themselves, that's a little bit of the unknown.
Speaker 2:While we have obviously average times across all the different sales we do, there can be unknown things that come up in a deal that can delay it a month or two months. So it's usually outside of everyone's control. And it's just a case of kind of getting through that. But yeah, with the averages we've done, we can usually give you a pretty good estimate. And I mean, a experienced broker perspective is also a bit of like just general experience and gut feeling.
Speaker 2:I can usually tell you pretty accurately how much the business is gonna sell for, how long it's gonna take, what the problems might be throughout the process. One of the most important things that a broker does is making sure that any potential issues are spotted in advance and mitigated. So we put a lot I mean, as you know, we spend a lot of time with sellers upfront asking kind of questions, going through your financials, making sure we understand the business. So hopefully when we get to the due diligence stages, there aren't any issues. But at the same time, you're dealing with, just like you said, with your business, you've like people in the process.
Speaker 2:There's people always throughout a business sale process. So there are always unpredictable things that can happen. So it's really just a case of knowing that unknown things could come up throughout the process, but being experienced enough to kind of navigate through that without panicking, which especially for like first time sellers tend to be one of the biggest issues is they don't know the process. They don't know what's going to happen. So sometimes things sort of come up can panic you.
Speaker 2:I've seen sellers who are trying to sell themselves and selling privately might panic and end up taking a lower offer from a buyer or pulling out of a deal or whatever, over saying that if they're working with a broker could have been handled in a slightly more kind of structured and non emotional way.
Brian Casel:I definitely saw the value in working with a broker and and I mean, you know, was working with with David on my deal and it was yeah. I found it hugely valuable to to to kind of rely on him, but like you said, you guys have done, you know, 300 deals so and this is my first time going through this. So I was, you know, continue you know, constantly asking, you know, is this a typical development or is this alright. So this issue came up. Like, how is this typically handled?
Brian Casel:And and it like, is this normal, or is or is this request kind of above and beyond? Like, you know, there are a lot of, like, requests and and little minor, like, negotiation points that I don't know what what should be acceptable or whatnot or or what should not be acceptable, you know, a lot of these, you know, lot of these things is kinda like the first time navigating through it, so that was really really helpful and I mean in terms of expectations, the one of the things that I was not totally prepared for, and this is no fault of of of anyone, it was just, you know, it's like I just didn't know what I didn't know is the time investment, during especially during due diligence and even like during closing, it was a pretty heavy investment of time and effort upfront to like you said, you guys do, kind of your own due diligence in a way to to get the business ready to sell to I mean in terms of like you know asking all the right questions upfront and and things like that. For me it was a good two or three months of the wholesale process including like the due diligence and everything and I mean there were weeks in there when I was spending like thirty thirty five hours that that week working on the sale whether it was like phone calls or working through documents or emails and things like that and and I'm like I also have a business to run you know.
Brian Casel:That became pretty stressful for me and and I I think that was that's something that maybe you know first time buyers first time sellers won't be you know prepared for.
Speaker 2:Yeah. Due I mean due diligence of all of all the different variables in a process due diligence from a broker perspective is the most unpredictable because there are firstly, you're almost always dealing with a new seller and a new buyer. It's unlikely are you dealing with a buyer who has bought through you before or has necessarily like bought that many businesses before. So while we do have a lot of repeat buyers and people who come back consistently, the most likely scenario is it's a new buyer. And the most likely scenario on the sell side is the seller has never sold a business before.
Speaker 2:And the very nature of due diligence is there are things that can come up that can take time that would necessarily like not foreseeable upfront, things that may have seen like minor issues. And it really depends on the buyer as well. Some buyers, depending on why they're buying the business might get through the process significantly quicker than others. So we've had due diligence processes that are signed off in a day and then others that might take six weeks. I think you kind of got the higher end of the average but then there's Well, also had to,
Brian Casel:I kind of went through two buyers before like we did the whole process and then did it all again.
Speaker 2:Yeah. So I mean, yeah that's the thing like there is we do have an average length of time these things take. Sometimes they can drag on a bit. Sometimes as you saw there might be issue suppliers and you might want to go work with another buyer instead. But I guess it's from our perspective is our job to get the deal closed.
Speaker 2:So we're gonna kind of push the process along without killing the deal, I guess.
Brian Casel:So I think we're coming up near the end of this interview here. Jordan, what else are you thinking about here?
Jordan Gal:So think the most valuable thing for founders, for entrepreneurs and listening to this conversation is the we forget we're so invested emotionally, our time, everything into the business that we are trying to build and grow, that we forget that there's this whole other element. There's this whole world of deal making at a very cold level, right? You're talking about businesses from an asset point of view and purchase prices and financing, and day to day, it's not like that at all. And I think it's important for founders to get this perspective. And if we're going to go toward the ideal of a business that we own instead of that we run and work inside of every day, it's good to get this perspective and realize the things that you can do and should be doing to make your business more valuable.
Jordan Gal:Unless you just want to run the business forever, which there's nothing wrong with, then you should be aware of this side of things, of what people are going to value in your business, how you can sell it, when you should sell it, what the right things to do or what the right systems to focus on. But it's very hard. A little example is the content thing. When the founder writes the blog posts, that's just what feels right in the moment, even if it's not the right thing three years from today. So there's a balance, but it's good to at least be aware of it and hear this point of view to be able to view your business from the outside.
Speaker 2:Yeah, no, absolutely. I mean, as a founder myself, I think part of the reason we're good to work with is we obviously as a business owner myself, we'd like, no, we're doing it. It's not like we have no idea how to run businesses ourselves and they're kind of completely new to the process. So I tell you, I mean, I think the key distinction there is to make between making sure your business is possibly sellable rather than what you're talking about is more value maximization. So I think when you're running a business, while there's nothing wrong with the founder writing a blog post or spending more time than you should have done on a new feature that your users will love, but isn't necessarily going to add to revenue.
Speaker 2:That's a thing you should be doing. That's a good thing to do. It's not necessarily going to increase the value of your business. It's avoiding those like deal killers, the things that make your business absolutely not sellable upfront. So for example, if I had named my business, I renamed it from FE International to thomasmail.com.
Speaker 2:I was a broker and I still had my same team that it's likely that business is going to be significantly less sellable down the line. So it's important to kind of differentiate between making sure it is in a position where it could possibly sell versus purely profit maximization, value maximization and doing everything you can to like squeeze every last dollar. Because from a business perspective, sometimes it's quite fun to run a business that kind of you make your users happy, your customers happy. It's not necessarily the most profitable decisions all the time, but they can in the long run, I guess, help you sleep better at night, help you build a business you actually enjoy running. And if you do need to sell it down the line, at least you know you've built a good business and a good product, but you've made all the right decisions to be in a situation where you could sell it if you had to.
Brian Casel:Yeah, you know I think that a lot of these things are like you know when you're just starting out or you've been running you know call it like a lifestyle business or whatever you wanna call it and you really don't intend on selling it or or you you don't think of that as an as a viable option, still taking these steps to build systems into your business or make sure you have your your books in order whether that means hiring a bookkeeper or something, you know, all these best practices when it comes to selling a business or or preparing a business to be sold, our best practices for running a solid business anyway, like these are things that you should be doing anyway even if you don't plan to sell and and so I think it's important to to think in that in that mindset of okay building a business that does, run systematically even if if I as the founder have some part in that or some role in that and I enjoy doing that, just understand what my role is and you know, get outside of the business itself and and try to look at it the way that an outsider whether that's a buyer or or anyone else might look at your business.
Speaker 2:Yeah. I think that's a very good point.
Brian Casel:Cool. Well, why don't we why don't we leave it there? Thomas, I mean, I know you you guys have a lot of, you know, good resources and things on your website. Anything people should check out right now?
Speaker 2:Yeah. So David and James, who you obviously work with David. And James and our brokerage team have literally just finished a new advanced guide to buying a business. So even if you're a founder or you run a business, it's worth having a read of that. So if you head on over to our blog, you can navigate by the different sections, whether interested in buying a business, selling a business, or like growing a business, we have various other like tips in there.
Speaker 2:Go have a read through, download the e book, have a read. Even if you're not necessarily buying, there's a lot of useful information there. I think one of the things from a seller perspective, like a good tip is think like a buyer. At least read through, look at the kind of things that buyers could be looking for. And then subconsciously, as you go along, your own business will be better for it with the decisions you go along and make.
Speaker 2:So yeah, check out the blog, download the free book and kind of keep up with our content as it keeps keeps coming out.
Brian Casel:Very cool. And that's over at feinternational.com. Thomas, thanks. Thanks for coming on. And I'll see you.
Brian Casel:Yeah. I'll see you next week in Barcelona.
Speaker 2:Yeah. I'll see you next week. Looking forward to it. Thank you
Brian Casel:very much.
Speaker 2:Thanks. And thanks a lot, John.
Jordan Gal:Thank you, Thomas.
Speaker 2:Have a
Jordan Gal:good one.
Speaker 2:Thank you.
Brian Casel:Alright. Yep.
![[83] Thomas Smale on Selling Your Online Business](https://img.transistorcdn.com/LDB_Cv9bHAA2vtoSPkZCpkdHPF6fAqfl7PL-PG7_c-M/rs:fill:0:0:1/w:800/h:800/q:60/mb:500000/aHR0cHM6Ly9pbWct/dXBsb2FkLXByb2R1/Y3Rpb24udHJhbnNp/c3Rvci5mbS9jMjkw/MDYxZDQ0MWIxYTUw/NTMzMGI2NTExZWMx/MWQ1Yi5qcGc.webp)